Why has the cost for Phoenix Avenue (excluding the recommended £350,000 contingency) risen by 15% in just over 1 year?
First of all can I point out that this audited tender response has occurred nearly 18 months after the original estimate which is a bit more than “just over a year”. Officers and I have struggled to see how you have managed to get to a 15% increase where we have only managed 10%.
However I believe whether it is 10% or 15% is not really the thrust of your question it is that the increase appears to be large.
Now the original estimate was based on work approved at the January 2014 Executive Meeting. So any building estimate is always going to be higher after the passage of 18 months of time.
This is for multiple reasons such as: refinement of the specification which has certainly been the case here; materials costs generally rise with passage of time; such material costs rise even faster when individual items face shortages, for example bricks which are having to be imported; labour costs generally rise with the passage of time; and again as with materials if there is a shortage of certain types of skills the costs rise even faster; eg bricklayers.
This is not just us saying this as the Council owes a duty of care with respect to spending money and therefore its company, WHL naturally asked reputable “Property and Construction Consultants” called Ridge to review this tender response. Their report reinforced the comments I have just made saying, and this is a direct quote from the report:
“Labourshortageshavebecomeanincreasingconcernasthemarketcontinuestorise.Bricklayersare particularlyscarceduetothesharpincreasein housebuilding,andweareseeingshortagesacrossallof the maintradesandprofessionsduetotheamountof workwithintheindustry.Inadditionmaterialsshortages havebecomemoreof aconstraintespeciallybricksandblocks,howeverwehavestartedtoseethistrendin otherareasassupplychainsstruggletocopewiththeaccelerationin activitylevels.The resultof boththese trendsmeansthatleadtimes,deliverytimesandprogrammesareallstartingtolengthen,whichis havinga negativeeffecton prices.”
Therefore it is totally unrealistic to expect an estimated cost set in January 2014 to remain the same some 18 months later.
My comment that I would make about the 15% is that the paper talks about a 10%, or just over 10% increase, but it is spread across two projects and when you go into the individual projects you will find that the one I asked about is 15% and the other one is lower - so that is why it is 15%.
Is there likely to be any further increases and could this have any implications for the viability of the project?
Not as far as we are aware but clearly it is a moving feast. We don’t expect any.